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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA & SHRI RAMLAL NEGI
आदेश / O R D E R PER SHRI SHAMIM YAHYA- AM:
This is an appeal by the assessee where the assessee is aggrieved that the Ld. CIT(A) has erred to sustain part disallowance on account of bogus purchases, vide order dated 21.08.2019, pertaining to A.Y 2009- 10. Being 12.5% of Rs. 82,63,142/- and 100% of Rs. 4,64,990/-.
. Shri Sarfaraj Ismail Shaik, Mumbai. - 2 - Another issue raised is that Ld. CIT(A) further sustaining part disallowance on account of mismatch in 26AS statement, on account of contract report at Rs. 3,75,133/-.
Brief facts of the case are that assessee in this case is engaged in the business of building material supplier. The assessment in this case was reopened upon receipt of information from the sales tax Department that assessee has made bogus purchases. The assessee submitted the purchase vouchers and the payments were made through banking channel. However, the suppliers were not produced before the AO. Sales in this case were not doubted. The income tax officer in this has made 100% addition on account of bogus purchases resulting in disallowance of Rs. 87,28,132/-. Upon assessee’s appeal, Ld. CIT(A) confirmed the same to the extent of 12.5% of purchases and 100% for purchases from M/s. Manav Impex of Rs. 4,64,990/-, wherein, AO has noted that the said party has responded denying any transaction the assessee. Furthermore, AO has also made addition of Rs. 4,76,739/- on account of contract received reported in 26AS statement which was not reflected in the assessee’s recounts. Assessee in this regard has submitted before the Ld. CIT(A) that a sum of Rs. 1,01,606/- being receipt from the contract has already been accounted for. The Ld. CIT(A) granted relief to this extent and confirmed the rest. Against the above order assessee is in appeal before the ITAT.
. Shri Sarfaraj Ismail Shaik, Mumbai. - 3 - 3. We have heard both the counsel and perused the records, upon careful consideration, we find that assessee has provided the documentary evidences for the purchase. Adverse inference has been drawn due to the inability of the assessee to produce the suppliers. We find that in this case the sales have not been doubted. It is settled law that when sales are not doubted, 100% disallowance for bogus purchase cannot be done. The rationale being no sales is possible without actual purchases. This proposition is supported from Hon’ble Jurisdictional High Court decision in the case of Nikunj Eximp Enterprises (in writ petition No. 2860, order dated 19.06.2014). In this case the Hon’ble High Court has upheld 100% allowance for the purchases said to be bogus when sales are not doubted. However, in that case all the suppliers were to be Government Agency.
3.1 In the present case, the facts of the case indicate that assessee has made purchase from the grey market. Making purchases through the grey market gives the assessee savings on account of non-payment of tax and others at the expense of the exchequer. As regards the quantification of the profit element embedded in making of such bogus/ unsustained purchases by the assessee, we find that it is the submission of the Ld. Counsel of the assessee that in similar circumstances disallowance has been limited to 10% of the bogus purchases by the Tribunal in several decisions.
. Shri Sarfaraj Ismail Shaik, Mumbai. - 4 - 4. Per contra Ld. Departmental representative supported the orders of the Ld. CIT(A).
Upon careful consideration, we find considerable cogency in the above submissions of assessee’s counsel. We note that in several decisions it has been held that disallowance on account of bogus purchases should be done by reducing the gross profit already disclosed from the standard 12.5% disallowance being done. Furthermore, Hon’ble Jurisdictional High Court in the case of Adam H Kazi has held that the disallowance regarding bogus purchases should be restricted to the difference between gross profit on normal purchases and purchases through bogus routes. Furthermore, we also note that several decisions that ITAT has considerably lowered the disallowance on account of bogus purchase. Accordingly, we direct that disallowance in this case be restricted to 10% of the bogus purchases. The ld. Counsel of the assessee fairly agreed to the above.
5.1 The other issue relating to addition sustained on account of mismatch between contract receipt as reflected in the 26AS statement and that accounted for by the assessee. It is the submission of the Ld. Counsel of the assessee that difference reflected in 26AS statement is a mistake, however, no evidence has been submitted. We find that merely stating that there is a mistake cannot suffice. The issue needs proper verification at the level of AO. Hence, we remit this issue the file of AO
. Shri Sarfaraj Ismail Shaik, Mumbai. - 5 - to examine has assessee’s submission that the said receipt reflected in 26AS statement is factually incorrect. The assessee should be granted adequate opportunity of being heard.
In the result the appeal of the assessee stands partly allowed.
This Order pronounced under Rule 34(4) of the ITAT Act on 30.07.2020.